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华尔街日报These 4 Measures Indicate That JEOL (TSE:6951) Is Using Debt Reasonably Well
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies JEOL Ltd. (TSE:6951) makes use of debt. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is JEOL's Debt?
The image below, which you can click on for greater detail, shows that JEOL had debt of JP¥5.10b at the end of September 2025, a reduction from JP¥10.8b over a year. But on the other hand it also has JP¥36.0b in cash, leading to a JP¥30.9b net cash position.
How Strong Is JEOL's Balance Sheet?
We can see from the most recent balance sheet that JEOL had liabilities of JP¥70.4b falling due within a year, and liabilities of JP¥12.2b due beyond that. On the other hand, it had cash of JP¥36.0b and JP¥40.5b worth of receivables due within a year. So its liabilities total JP¥6.09b more than the combination of its cash and short-term receivables.
Of course, JEOL has a market capitalization of JP¥259.0b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, JEOL also has more cash than debt, so we're pretty confident it can manage its debt safely.
Check out our latest analysis for JEOL
On the other hand, JEOL saw its EBIT drop by 9.5% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine JEOL's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While JEOL has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, JEOL's free cash flow amounted to 37% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Summing Up
We could understand if investors are concerned about JEOL's liabilities, but we can be reassured by the fact it has has net cash of JP¥30.9b. So we don't have any problem with JEOL's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that JEOL is showing 1 warning sign in our investment analysis , you should know about...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.